Several careers come with short work lives: Athletes, models, air hostesses and actors are among the professionals whose careers typically do not extend beyond 15-20 years. Short work lives limit their ability to accumulate savings and build a healthy nest egg.
Also, the income from some of these professions is quite erratic. Uncertain earnings do not allow for regular, disciplined savings. For these reasons, the approach to savings and investments for such individuals has to be different from those with long careers and predictable, regular income. Here’s how they can better secure their finances.
Focus on career, splurge later
While for the salaried class, typically, the earnings graph rises steadily and peaks near retirement, for sports persons, actors and models, earnings rise speedily and dip quickly as well. “Earnings can peak very early in their careers, while pay schedules and cash flows maybe unpredictable over the course of their entire career and beyond that,” says Ankur Maheshwari, CEO, Equirus Wealth Management.
It is critical that these professionals realise right at the outset that their savings approach needs to be different, says Swarup Mohanty, CEO, Mirae Asset MF. “Their peak earning potential could be for a short tenure. It is in this tenure that all prudent investment decisions have to be made, so funds can last for their entire life,” he says.
Actors, athletes, models and artistes also face long stretches of time when they don’t have work. Vivek Mishra, 29, got his first break as an actor in 2013 and has since played roles in TV serials and short films.
In Pic: Vivek Mishra, 29 Actor
Vivek supports his acting career by teaching at a computer institute. He invests primarily in fixed deposits and is yet to start investing in equities.
He stresses that up-and-coming actors must have other jobs to be able to support their lifestyles. “Most actors cannot survive on this profession alone in the initial years, unless you can grab a meaty role early on in the career,” says Mishra. He has worked as a part-time coach at a computer institute and has also hosted some events.
In Pic: Kiran J, 32, Choreographer
Kiran takes on corporate and wedding events during off seasons. He invests 30-40% of his income in fixed deposits and mutual funds. To extend his earnings life, he aims to start his in own dance studio.
Take the case of 32-year-old Kiran J, who currently assists a celebrity choreographer: “Dance as a career is very seasonal in nature. I face cash flow issues during festive seasons or vacations, when people usually travel or are busy celebrating.”
Kiran wades through the off-seasons by taking on other projects such as corporate and wedding events. During their early years, such professionals should focus on securing their immediate future, reckons Amol Joshi, Founder, PlanRupee Investment Services. “Whenever you fetch your first few chunks of earnings, put aside the money towards securing the next 2-3 years of expenses,” he insists.
Rohit Shah, Founder and CEO, Getting You Rich, adds that these professionals need to put in place a stronger emergency fund because of unpredictable cash flows. Also, in this critical stage of the career, the focus should be on enhancing skill sets and getting a toehold in the profession. For actors, this may mean trying their hand at playing different characters and not getting constrained in a particular role. Athletes should be participating in a range of tournaments to gain relevant exposure at higher levels. Once the skills have been honed, not only will there be greater likelihood of success in the chosen field, but also the room to adopt a more aggressive investing approach for financial security, say experts
Need for higher savings rate
Individuals who face a short career need to step up their savings rate early on in their career. “As the runway for savings is much shorter, they have to compensate with a higher savings rate,” says Shah. Even if you start small, it is advisable to hike the savings every year in order to build a sizeable corpus by the time the career ends. This also means postponing big-ticket spends to later years. Financial advisers suggest delayed gratification even for those with a longer earning life, as larger savings and investing early on will help build a bigger corpus by benefiting from the immense power of compounding. This is critical for those with shorter careers.
Will your savings last?
If you career is likely to be over by the age of 35-40, there is a danger of you outliving your savings.
Note: Annual inflation is assumed to be 6%. Figures in bold are the number of years the corpus is likely to last, based on returns and withdrawal rates.
“When money starts flowing, the tendency of most individuals in these professions is to splurge. A more calibrated uptick in lifestyle is desirable to avoid a cash crunch later,” says Suresh Sadagopan, Founder, Ladder 7 Financial Advisories.
While some of these professionals draw a huge income quite early on, the money doesn’t last forever, warns Radhika Gupta, CEO, Edelweiss Mutual Fund. “It’s not a secret that some professionals make a lot of money but, for many, the lack of discipline leads to financial troubles in the later part of their life. You have to be able to provide for yourself after hanging up your boots, so what you save makes a huge difference.”
Thirty-one-year-old Shirene Muncherjee D’Lima secured a high paying job as an air hostess when she was 22. Securing a fat pay packet at such a young age can be intoxicating and Shireen couldn’t resist living the high life, splurging on a fancy lifestyle. For many years, she put away around 20% of her earnings when she could have easily afforded much higher savings. “At that time, I didn’t consider that this high income would not continue forever. Looking back, I now realise that I could have been a bit smarter with my money,” she says.
Fortunately, Shireen’s father kept directing her savings towards equity mutual funds, which ensured that she was able to amass a decent corpus. Tarun Birani, CEO, TBNG Capital Advisors, says, “I have seen numerous cases where people have lots of funds due to instant success and fame but very few are able to protect the money because lack of financial education.” Planners particularly insists that professionals avoid big-ticket spends early on, particularly in illiquid assets. For instance, it would be a mistake to tie up your savings in buying a house early in the career, cautions Shah. “Once you get into the EMI rut, it gets difficult to save for other key financial goals like retirement and children’s education,” he adds. Accumulating savings for 5-7 years will afford you a bigger corpus to buy the house and lessen the burden on your finances at a critical time in your career.
Invest more, don’t withdraw soon
Professionals with short careers should invest larger sums and hold back withdrawals as long as possible.
Note: The above figures assume 12% rate of return on investment. ^Assuming no withdrawal and 12%, rate of return. *Monthly investment over 30 years.
Have a balanced approach
Merely having a higher savings rate will not suffice. The savings should be directed towards a mix of assets that lend stability and afford healthy capital appreciation. Many of those engaged in sports or acting tend to be too conservative in this aspect. “Most of these individuals tend to be highly risk-averse given that their career itself is prone to a degree of volatility,” says Sadagopan.
Experts advise against deploying the bulk of the savings in bank fixed deposits or other fixed income instruments like PPF (public provident fund) or NSC (national savings certificates). While these instruments provide a guaranteed return and ensure safety of capital, the final corpus will barely allow you to maintain the purchasing power of your money. Inflation will eat into a chunk of the returns, leaving you with little savings. Besides, such professionals should avoid instruments with a longer lock-in period, such as the PPF, as they compromise liquidity, suggests Joshi.
In pic: Yogesh Padukone, 38 Former shuttler
Yogesh invested all winnings and his salary income mostly in fi xed depoits and other fi xed income instruments during his playing career. Later, he repositioned his portfolio and started SIPs in some mutual funds.
Yogesh Padukone, a 38-year-old former shuttler, who played in the national badminton circuit till the age of 30, rues not having invested his savings more wisely in his playing days. “I mostly parked money in bank FDs during my playing career. I realised much later that these investments are limiting the growth of my savings.”
He now puts aside money regularly in equity mutual funds as well, to help him generate a higher corpus that can support his son’s higher studies, among other goals. Financial planners insist that if you want to build a solid foundation for later years, you must put a sizeable chunk of your savings into equity-oriented investments. “If savings accumulated over a 15-20 year time frame have to provide for the rest of your life—which could extend to 40 years and beyond—they should be invested in growth-oriented assets,” says Sadagopan. “The shorter the earning potential, the higher the risk the individual has to take to make any sort of meaningful financial kitty. The tendency is to do just the opposite, which never works in the long run,” says Swarup Mohanty, CEO, Mirae Asset Mutual Fund.
Depending on the risk profile, one may opt for multi-cap funds or balanced hybrid funds that invest equally in both equity and debt. However, given the erratic nature of earnings of many professionals in modelling, acting and sports, a slightly different approach will be needed to ensure disciplined savings.
The typical SIP route to mutual funds will not be suitable for these professionals as they don’t have the comfort of regular income. Systematic transfer plans (STP) work better for such professionals, say experts. Since they are likely to earn larger sums at uneven intervals, they can put away the lump sum in a debt fund as and when the income flow permits. Debt fund will earn a better return, typically around 6-7%, compared to a savings bank account. “This debt fund becomes a one-place repository for safely parking every incoming flow and later, such professionals can take appropriate investment decisions,” says Maheshwari.
Depending on the risk profile, the person can then initiate a STP from the debt fund into an equity fund, earmarking a specific sum to be steadily transferred at regular intervals into the latter. The staggered entry into the equity fund will ensure the investment is spread out over market cycles and not exposed to market timing. Even if the actual income flow is irregular, the STP route allows for regular, disciplined savings that will benefit the investor over the long term.
For instance, if a model earns Rs 5 lakh from a photoshoot, she can park around Rs 4 lakh in a liquid fund and initiate an STP of Rs 10,000 into a carefully chosen equity fund for the next 3-5 years. Any further earnings from assignments can be similarly directed towards the liquid fund, which will fuel the STP over a longer time horizon. Joshi says, “The STP will lead to the same disciplined savings and help normalise the market-related volatility in the same manner as SIP does for professionals with regular, defined, cash flows.” As suggested earlier, investments via STP should be stepped up every year to ensure more money is put to work.
Allow savings to grow beyond working life
Unless the short career affords you a very high income, the savings at the end are unlikely to be sufficient to cater to all goals and allow you to maintain your lifestyle for an extended period. Professionals with short careers are likely to start drawing from their accumulated savings immediately in the absence of an income stream.
A professional whose career lasts only till the age of 40-45 faces the prospect of outliving his savings in the next 15-20 years when he is likely to survive for at least another 35-40 years. To avoid such a situation, it is critical that the rate of withdrawal from savings does not exceed the return that the savings generate. How long the corpus lasts depends on whether its returns can beat inflation or not, and whether you can keep expenses below the inflation adjusted growth rate of your savings. Essentially, earnings from the accumulated corpus should surpass your expenditure to sustain your current lifestyle, argues Tanwir Alam, Founder and MD, Fincart.
Suppose an athlete has accumulated a corpus of Rs 1.2 crore by the age of 40, and expects the corpus to generate 10% return annually while inflation averages 6%, at an initial withdrawal rate of 5%, or Rs 6 lakh annually, his savings will provide for another 35 years of expenses. If the initial withdrawal rate is 7.5%, or Rs 9 lakh annually, the corpus will run dry in 18 years. Besides, even at the end of the earning career, there should some focus on growing the wealth, argues Mohanty: “There should not be this rush to immediately move all money to safer assets since earnings have stopped. The money has to continue earning for itself.”
Some individuals manage to transition into a different role after their primary career is over. For instance, several former cricketers, footballers and hockey players run academies to coach younger talents. Many actors, models and athletes have successfully transitioned into talent management.
In Pic: Shirene Muncherjee D’Lima, 31 Former air hostess
Shirene did not save as much as she could have, but her father guided her to invest in equities and this has helped build a healthy corpus. She also made successful career transition as a customer relations manager
Shirene has recently made a switch to managing customer relations for a leading hotel chain in the country, leveraging her customer-facing experience as an air hostess. However, not everyone finds success in their second innings. Joshi suggests that in order to get more mileage from the money already accumulated, these professionals should attempt to reinvent themselves in a manner that prolongs their earnings flow by at least a few years. “This will postpone the drawdown from your accumulated corpus, allowing the savings to grow for a few more years. Even 2-3 additional years of keeping the entire money invested can allow the corpus to grow by 20-30%,” says Joshi.
Even if you are not in a position to continue working in the same capacity and have the same earnings profile as before, it will be a good idea to take on a smaller role that allows you to take care of basic expenses at the very least, suggests Sadagopan. If you can provide for basic expenditure without dipping entirely into your savings, it can go a long way in growing your corpus and affording the same lifestyle as before for your family, after a few years.
Transitioning into the next phase of one’s life occurs faster in such professions, points out Ashish Shanker, Head, Investment Advisory, Motilal Oswal Private Wealth Management. “Whether it is an athlete or an actor, this transition may be hard to swallow. This means the jobs may not be as regular and high paying as before. But planning for the same as early as possible will mean much smoother sailing into this new phase.”